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European Union
CJEU rules on the persons entitled to claim damages
By a preliminary ruling of 12 December 2019 (case C-435/18), the Court of Justice of the European Union (“CJEU”) provided clarification regarding the persons entitled to request compensation for loss caused by a cartel.
This case was referred by the Austrian Supreme Court and followed an action for compensation brought by a public body against five companies active on the market for the installation and maintenance of lifts and escalators, whose participation in a cartel has already been established.
Even though the applicant has not suffered loss as a purchaser, the increase of construction costs caused by the cartel led it to grant subsidies (promotional loans aiming at financing construction projects affected by the cartel) with a higher amount than would have been without the cartel. The public body claimed that this circumstance prevented it to use its money more profitably. It challenged national law relating to private enforcement preventing it from obtaining compensation as it was neither a supplier nor a customer on the market impacted by the cartel.
The CJEU, however, declared that any damage having a causal link with an infringement of Article 101(1) TFEU must be capable of being compensated. Consequently, compensation should not be limited to suppliers or purchasers and any person affected must be entitled to request compensation. In the present case, the Court found that the amount of subsidies would have been lower without the cartel, which justified the compensation claim.
Last but not least, the CJEU suggests that the ability of seeking compensation must not be limited to the scope of the market concerned but may be opened to actors active in totally different markets. The CJEU takes a further step forward as until now, compensation remained restricted to the downstream market of the market affected by the cartel.
Julie Catherine
Associate, Paris
CJEU rejects damages claim for additional bank guarantee costs
Guardians Europe’s damages claim was brought following the 2007 European Commission ("EC") decision to fine Asahi Glass, Guardian Europe (“Guardian”), Pilkington and Saint-Gobain – four glass-product makers – a total of €487 million for coordinating price increases for deliveries of flat glass.
In its 2007 Decision, the EC had initially set the fine for Guardian Europe at €148 million. Guardian chose to obtain a bank guarantee for the amount rather than to pay the fine immediately, as it was in the process of appealing the fine. The General Court (“GC”) rejected Guardian’s appeal in 2012, but the Court of Justice of the European Union (“CJEU”) overturned it and, in November 2014, reduced Guardian’s fine by €45 million (to €103.6 million) on the basis that the EC had discriminated against the company in calculating the fines.
A year later, in November 2015, Guardian brought a claim alleging infringements of the obligation to adjudicate its initial challenge to the EU fine within a reasonable time, which caused material damages resulting from the payment of additional bank guarantee fees. The GC agreed and, in June 2017, awarded Guardian €0.65 million in compensation for the material damages resulting from the payment of additional bank fees. The EC appealed on behalf of the EU.
On 05 September 2019, the CJEU quashed the GC ruling, finding no causal link between the delay in proceedings and the damage sustained by Guardian. Instead, the CJEU stated that the alleged damage was the result of Guardian's own decision to provide a bank guarantee instead of paying the fine immediately.
The CJEU’s judgment confirms that, where a party chooses to defer the payment of a fine (for example pending an appeal) and instead provides a bank guarantee, it must bear the negative financial consequences of any delay in the appeal proceedings.
Romain Girard
Associate, London
GC annuls HSBC €33.6 million fine
Background
On 07 December 2016, the European Commission (“Commission”) found that HSBC infringed Article 101 TFEU by taking part, from 12 February to 27 March 2007, in a single and continuous anti-competitive agreement with the object of distorting the normal course of pricing on the market for Euro Interest Rate Derivatives (“EIRDs”) linked to the Euro Interbank Offered Rate (“Euribor”) and/or the Euro Over-Night Index Average. The Commission imposed a fine of €33.6 million. Several other banks were found to be party to the anti-competitive arrangement. Some settled with the Commission in 2013, while others – Credit Agricole and JP Morgan – were sanctioned in the same decision as HSBC.
The Commission considered that there had been three forms of infringing conduct:
- traders from the banks sought to manipulate submissions to Eurobor;
- traders exchanged detailed information around their pricing intentions and strategies regarding EIRDs; and
- traders disclosed information relating to EIRD trading positions.
The Commission’s decision was appealed to the General Court (“GC”), which gave judgment on 24 September 2019.
The GC’s judgment:
The GC upheld most of the Commission’s findings in relation to the infringements.
In relation to the manipulation of Euribor, the GC agreed that the traders had restricted competition by object by creating an information asymmetry between those traders and other market participants. In particular, the infringing banks’ traders were better able to know in advance with a certain accuracy what level Euribor would be and/or was intended to be set and whether or not the Euribor was at artificial levels on a given day. This would allow those traders to propose more competitive rates than their competitors, knowing that cash flows associated with certain contracts would remain positive.
The GC endorsed the Commission’s assessment that EIRD mids exchanged between HSBC and others were relevant to EIRD pricing, representing an individual perception of the price, and therefore revealing a price intention. Although an offer price would be set slightly above the mid, and the bid price slightly below, changes in the mid tend to result in a parallel change in the bid/offer price. Knowledge of a competitor’s mid makes it possible to assess that competitor’s perception of what the variable rate of the EIRD will be on the fixing date, by applying the yield curve, at least as regards EIRDs with a short maturity.
The Court examined separately the question of exchanges of information between traders in relation to trading positions; being the composition of a trader’s investment portfolio (his ‘book’), and the level and direction of their exposure on the EIRD market.
The GC found that this information did not have the same relevance to pricing on the EIRD market as information on mids. While the GC accepted that the traders exchanged confidential information outside of the context of a potential transaction, the Commission had not established to the requisite legal standard that such information gave the traders an informational advantage that may have allowed them to adjust their trading strategies as a result.
Nonetheless, the Commission’s error does not vitiate is the wider decision; though it could be relevant to the “gravity of the infringement” and thus the amount of the fine.
The Commission had calculated the €33.6 million fine by reference to its 2006 Fining Guidelines, according to which relevant sales, not profits, are the starting point for calculating fines. Acknowledging that EIRDs did not give rise to “sales” in the usual sense, the Commission instead used cash receipts arising from EIRD contracts – with a reduction of 98.84% applied – as a proxy for “sales”.
The GC confirmed that using discounted cash receipts was consistent with the logic underlying the choice of value of sales under the 2006 Fining Guidelines, but also observed that the determination of the rate of the reduction factor applied (98.84%) is essential in determining the value of sales, due to the particularly high amount that arises from taking account of cash receipts. A variation of 0.1% in the rate of that factor would affect the final amount of the fine by almost €16.2 million.
Then, the Court stated that the Commission had failed to provide sufficient reasoning as to the selection of 98.84% as the reduction factor.
Therefore, the decision setting the level of the fine was annulled by the Court.
The Commission may choose to readopt the decision, with expanded reasoning in respect of its fining methodology.
Duncan Green
Associate, London
EU Commission imposes Interim Measures on Broadcom
The EU Commission has used its powers to impose interims measures for the first time in 18 years. In October 2019, Broadcom was ordered to stop applying exclusivity terms and to withhold discounts and other advantages given to six customers that sourced almost all their needs of certain with the US chipmaker.
The EU Commission opened a formal investigation against Broadcom in June 2019. The investigation concerned various issues including practices such as exclusivity dealings, tying, bundling, interoperability degradation and abusive use of intellectual property rights.
The EU Commission justifies the interim measures on the basis that Broadcom, at first sight, holds a dominant position in three markets and engages in practices which amount to an abuse of this position. The challenged practices include: exclusive or quasi-exclusive purchasing obligations and leveraging that position in neighboring markets. Against this background, the EU Commission ordered that Broadcom unilaterally cease to apply the anticompetitive provisions as well as refrain from agreeing the same provisions or provisions having an equivalent object or effect in other agreements.
The decision taken by the EU Commission shows that past calls for a more offensive use of the power to impose interim measures have been heard. With regard to the practices challenged by the Commission, the EU Commission relies on such practices such as exclusivity dealings which the EU courts found to be in breach of Art. 102 TFEU, for example as in the Intel case.
Dr Martin Gramsch
Counsel, Düsseldorf
Reading grid to determine the existence of a restriction by object or by effect
On September 5, Advocate General (“AG”) Bobek handed its opinion in the Budapest Bank case (C-228/18), a preliminary ruling request from the Hungarian Supreme Court to the Court of Justice of the European Union (“CJEU”). The case concerned an agreement introducing a uniform multilateral interchange fees (“MIF”) concluded between seven banks and applicable to Visa and Mastercard.
The Hungarian Supreme Court referred four questions to the CJEU. AG Bobek mainly focused on the following:
- under what conditions can an agreement, such as the MIF, be qualified as a restriction by object?
- can the same conduct be qualified both as a restriction by object and by effect?
Based on case-law analysis, AG Bobek found that the restriction of competition by object requires a two-step analysis.
First, one should focus on the provisions of the agreement and its objectives, in order to assess whether it falls into a category of agreements that are harmful by their nature. Second, to confirm the anticompetitive nature of the agreement, one must assess the economic and legal context in which the agreement was implemented. The nature of the goods or services, the structure and conditions of functioning of the market should be taken into account, as well as the intention of the parties, where relevant.
This second step does not amount to a de facto by effect analysis and is crucial as “a restriction by object can never be established in the abstract”. However, if the agreement is likely to have ambivalent effects on the markets, an analysis of the effects becomes necessary. This effect analysis must focus (i) on a detailed counterfactual (what would have been the competitive structure without the agreement?) and (ii) on the net effects of the practice (versus the mere possibility of the agreement to have anti-competitive effects).
AG Bobek also underlined that the distinction between object and effect is mostly of procedural nature and that the CJEU case law implied that by object restrictions necessarily trigger anti-competitive effects. Therefore, he considered that the same conduct can be both a restriction of competition by object and by effect.
Julie Catherine
Associate, Paris
GC reduces the fine imposed to the Belgian recycling company for the recycling car batteries cartel
On 7 November 2019, Belgian Campine Recycling NV (“Campine”) saw its € 8.1 million fine for its involvement in the European Car Battery Recycling cartel reduced to € 4.3 million by the GC.
Unlike most anticompetitive agreements where companies agree to increase their selling prices, in the present case, the four recycling companies had agreed to reduce the purchase price paid to scrap metal dealers and scrap metal collectors for used car batteries.
By coordinating downwards, the prices they paid for battery waste, the four companies increased their profit margin and thereby disrupted the normal functioning of the market and affected price competition.
While the General Court (“GC”) confirmed that Campine had participated in anticompetitive conducts, it took issues with its findings on the duration of the infringement and the reduction the EC granted for mitigating circumstances.
In its judgement, the GC found that the EC has not established Campine’s involvement in the anticompetitive practice for two periods of eleven months (over a total cartel period of three years). Thus, rather than a single and continuous infringement, the GC judged that Campine had committed a single and repeated infringement.
In addition, the GC determined that Campine deserved a higher fine reduction and found that an 8% fine reduction instead of a 5% reduction for mitigating circumstances would be more appropriate in light of Campine’s limited role in the anticompetitive cartel.
In its 2017 decision, the EC also fined Eco-Bat € 32.7 million and Recylex € 26.7 million. Johnson Controls escaped a financial penalty because it blew the whistle on the group's illegal behavior.
Astrid Groboz
Associate, Paris
EC publishes a summary of the National Competition Authorities’ contributions to the VBER and its guidelines
As the Vertical Block Exemption Regulation n°330/2010 (“VBER”) is set to expire on 31 May 2022, the European Commission (“EC”) is currently evaluating the functioning of the VBER and its guidelines following 5 evaluation criteria (effectiveness, efficiency, relevance, coherence and EU added value). The purpose of this review is to determine whether the EC should let the regulation lapse, prolong its duration or revise it.
In this regard, the EC published, on December 2019, the summary of 20 contributions of National Competition Authorities (“NCAs”) reflecting their experience in applying the VBER and its guidelines.
In general, the NCAs consider that both instruments (VBER and guidelines) shall be maintained but clarified and updated in light of new market developments (new forms of distribution with online sales and new players with online platforms), new business models and new technologies.
As the rise of online players and e-commerce needs to be better reflected in the upcoming regulation, the NCAs propose for example more guidance regarding the application of the 30% market share threshold in relation to online platforms as they often operate on multi-sided markets.
Furthermore, if the 30% market share threshold is, according to most NCAs, generally appropriate, the NCAs point out that this threshold could be inadequate for online platforms as they may have market power even below this threshold (due to access to data and network effects).
In addition, NCAs ask for more guidance on certain subjects in light of the experience acquired in the application of the VBER over the last ten years. For example, the NCAs indicate that the market share thresholds do not seem to function properly when applied to oligopolistic markets and propose to introduce an additional oligopoly threshold (of 50%) with a lower market share threshold (at least 15%).
It is also interesting to note that NCAs express different views regarding the legal treatment of Resale Price Maintenance (“RPM”). If some NCAs question the presumption of illegality of RPM as it can be argued that they improve welfare under certain circumstances, others consider that it is rightfully included in the list of hardcore restrictions because of the widespread use of such restriction, its severe effect on competition and the lack of (substantiated) efficiency claims.
Astrid Groboz
Associate, Paris
Belgium
Cour de Cassation annuls judgment of Market Court in Distripaints case
On 12 September 2019, the Belgian Supreme Court (“Cour de cassation” / “Hof van cassatie”) annulled the Market Court’s judgment of 13 December 2017 regarding the case of Distripaints NV and Novelta NV v Belgian Competition Authority (“BCA”).
The Market Court’s judgment concerned the decision of the Investigation and Prosecution Service of the BCA (Auditorat / Auditoraat) to conduct dawn-raids at the premises of Distripaints NV and Novelta NV on suspicion of having concluded anticompetitive agreements with their common supplier, AKZO. These allegedly anticompetitive agreements would include single branding clauses, fidelity rebates, tying obligations, an exclusionary strategy vis-à-vis a competitor of AKZO and a monitoring system of competitors’ prices. The applicants claimed that the BCA had seized documents during these dawn-raids that did not relate to the investigation (so-called out-of-scope documents) and therefore should have been excluded from the case file.
The Market Court’s judgment followed an earlier interim judgment in which the Market Court had ordered the applicants and the BCA to conduct a verification process whereby the BCA was ordered to sufficiently state the reasons for each contested document as to why the document was relevant for the investigation. In its interim judgment, the Market Court had in this respect ruled that a general statement that all documents concerned the relevant market conditions did not suffice and ordered the applicants and the BCA to try to find an agreement on the nature of each document concerned.
As they failed, the Market Court had to assess for each document concerned whether or not the BCA had sufficiently stated its reasons. In its judgment, the Market Court limited its review to checking whether the BCA had complied with the interim judgment, including in particular the obligation to state reasons for each individual document, whereby the reasons that were invoked were only reviewed marginally. Following its (marginal) review, the Market Court dismissed the applicants’ appeal of the BCA’s decision.
This judgment was appealed to the Supreme Court which dismissed most of the applicants’ appeal arguments, ruling (i) that a prior warrant for dawn raids was not necessary as long as there was sufficient judicial control afterwards, (ii) that the Market Court’s full jurisdiction does not mean that the Market Court has to take on the role of a competition authority and (iii) that the criminal nature of competition law sanctions does not imply the need to follow criminal procedure rules. The Supreme Court however accepted the applicants’ claim regarding the damage claim ruling that the damage claim was made after the interim judgment so that the Market Court had not yet exhausted its jurisdiction in this respect. The Supreme Court subsequently annulled the Market Court’s judgment and sent it back to the Market Court (in a different configuration) to review the case in line with the Supreme Court’s reasoning.
Mathieu Vancaillie
Supervising Associate, Brussels
Ordre des Pharmaciens settles and commits to adopt new code of ethics
On 16 October 2019, the Investigation and Prosecution Service of the Belgian Competition Authority (Auditoraat / Auditorat) settled with the Ordre des Pharmaciens regarding certain rules of its code of ethics that limit the ability of pharmacists to advertise for parapharmaceuticals (e.g. for discounts) and to advertise online for parapharmaceuticals (in particular via paid referencing, e.g. Google AdWords).
The Ordre des Pharmaciens committed in this respect to adapt its Code of Ethics and to prepare an explanatory code for pharmacists to avoid an anticompetitive interpretation of the new Code of Ethics by its disciplinary bodies.
As part of the settlement, the Ordre des Pharmaciens acknowledged its participation in the infringement and accepted the sanction. For this reason, a 10% reduction of the fine was granted by the BCA.
In addition, as a result of the abovementioned commitments, the BCA decided to close the investigation into an alleged infringement by the Ordre des Pharmaciens for failure to act against alleged anti-competitive decisions by disciplinary bodies.
Mathieu Vancaillie
Supervising Associate, Brussels
Kinepolis decision annulled for the third time
On 23 October 2019, the Brussels Court of Appeal annulled the decision of the Belgian Competition Authority (“BCA”) of 25 March 2019 (reference is in this respect made to our newsletter of May 2019).
In its judgment, the Market Court ruled that the BCA had not sufficiently stated its reasons for continuing to (partially) restrict the possibility for Kinepolis to build new cinemas (requiring prior consent of the BCA).
Moreover, the Market Court stated that, as a result of the newly adopted Belgian competition law (reference is in this respect made to our newsletter of September 2019), it had full jurisdiction to review decisions concerning the amendment of remedies imposed in the context of concentrations (while it does not have full jurisdiction to review the concentrations themselves).
As a result, using its full jurisdiction, the Market Court completely abolished the remedy concerned. However, the Market Court ruled that the remedy has to be abolished following an appropriate transitional period only and referred the case back to the BCA to decide on this point.
Mathieu Vancaillie
Supervising Associate, Brussels
Netherlands
Company fined for employees having deleted WhatsApp messages during dawn-raid
On 11 December 2019, the Netherlands Authority for Consumers and Markets (“ACM”) announced that it imposed a fine of € 1.84 million on an undisclosed company for obstructing an ACM dawn raid that took place in 2018.
According to the ACM, sometime after its dawn raid had started, some employees of the company left internal (WhatsApp) chat groups and some deleted corresponding chat conversations. Later that day, the company’s outside counsel apparently informed the ACM inspectors that this behaviour had occurred during some part of the dawn raid.
The ACM gave a 20% reduction of the fine since the company involved subsequently fully cooperated with the ACM and entered into a settlement/settlement-like arrangement with the ACM regarding the dawn raid behaviour. The main underlying investigation into the alleged anti-competitive behaviour is still ongoing, with more details to be published once the ACM reaches its final verdict.
This case is a reminder that a company and its employees are under an obligation to cooperate with a competition authority in the context of a dawn raid. It also goes to show that in the context of a company’s robust compliance management system, it is essential that employees are well trained for a dawn raid scenario.
Robert Hardy
Counsel, Brussels
ACM ordered to compensate realtors for reputational damage
On 24 September 2019, the Trade and Industry Appeal Tribunal (“CBb”) ruled that the Netherlands Authority for Consumers and Markets (“ACM”) needs to pay damages to three realtors for having suffered immaterial damages (reputational damage).
These damages were suffered as a result of an infringement decision of the ACM that was annulled in 2017 (for not proving the continuation and geographic scope of the infringement and the extent of the realtors’ respective participation).
In application of the Dutch law of 1 July 2013 on damages following unlawful decisions, the realtors claimed to have suffered damages for lost profits, legal costs and immaterial damages.
While the unlawfulness of the ACM’s decision was not contested, the ACM argued that the realtors were not able to show the existence of a causal link between the unlawful decision and the damages suffered.
The ACM argued in this respect that the by-object nature of the infringement had not been contested by the CBb in 2017 so that in absence of the unlawful decision, the ACM would still have been able to prove the existence of an infringement. The ACM referred in this respect to its decision to re-open proceedings against the realtors concerned.
The CBb dismissed these arguments and considered that the ACM was not able to prove that it would have been able to prove the existence of an infringement by the realtors absent the unlawful decision (taking inter alia into account the Dutch de-minimis rules which apply to by-object restrictions as well).
The CBb subsequently discussed the existence of the claimed damages. It ruled that the realtors had not shown that the unlawful decision had affected their possibility for doing business. Moreover, it ruled that the legal costs can only be compensated on the basis of the specific legislation in this respect. The CBb however accepted that the unlawful decision had caused the realtors to suffer reputational damages.
As a result, the CBb ordered the ACM to pay the realtors €40.000 each to compensate for the suffered reputational damages.
Mathieu Vancaillie
Supervising Associate, Brussels
France
Papeete’s Court of Appeal annuls investigations carried out by the Polynesian Competition Authority in the road asphalt construction sector
The Polynesian Competition Authority (“PCA”) suspected the existence of a cartel in the road asphalt works sector on the occasion of two construction tenders and was authorised by the Liberties and Detention Judge (“LDJ”) to carry out investigations in the premises of certain companies and professional associations in this sector.
The operations were carried out on 21 May 2019 and resulted in seizures and investigation reports.
On 4 December 2019, the first President of the Papeete Court of Appeal decided to annul the authorization given by the LDJ on the grounds that the elements contained in the file justifying the authorization were not only anonymized but completely concealed, so that neither the companies visited nor the first president of the Court of Appeal of Papeete were able to know whether these documents were sufficient to justify the authorization.
The Papeete Court of Appeal considered that the protection of business secrecy may justify the presentation to the LDJ of documents that have been partially redacted, but that these documents must leave enough evidence for the judge to have been able to find in them the justification for a presumption of anti-competitive practices, justifying the search warrant.
Florent Barbu,
Supervising Associate, Paris
Supreme Court confirms the €20 million fine imposed on Fnac Darty for non-compliance with a structural remedy
On 7 November 2019, the French Administrative Supreme Court (“Conseil d’Etat”) confirmed the decision 18-D-16 by which the French Competition Authority (“FCA”) fined Fnac Darty €20 million for failing TO divestiture three stores, which was a pre-condition for clearance of the acquisition of Darty by Fnac in 2016. On 27 July 2016, the FCA:
- had, for the first time, included into the same market physical store sales and online sales;
- approved the take-over of the Darty Group by Fnac, subject to the divestment of six stores in Paris and Paris region by 1 august 2017.
At the end of the period granted to meet its commitments, 3 store divestitures could not be realised (Fnac Darty failed to present a sale agreement for one of the stores and to identify a buyer for the two other stores), leading the FCA to hand down a €20 million fine in 2018. This decision was the first decision specifically related to the non-compliance with structural divestiture commitments.
The Conseil d’Etat considers that the fine imposed is not disproportionate in view of the conduct of Fnac Darty and the seriousness of the breaches committed and that the FCA has not infringed the principle of the individual assessment of fines.
The ruling of the Conseil d’Etat confirms that the commitments taken before the FCA shall be very strictly applied and respected by companies, subject to strong penalties.
Astrid Groboz
Associate, Paris
FCA fines Astre transport group €3.8 million for customer allocation
Astre group is composed of two entities: (i) Astre Coopérative, which oversees recruiting new members and ensures compliance with the group’s internal rules of procedure and (ii) Astre Commercial, which sells transport and logistics services from members of the group by responding to call for tenders and consultations.
The Astre group introduced a system of customer allocation between its members for more than 20 years, through no-competition clauses in its internal rules and membership agreement non-competition clauses whereby members of the group were being prevented from prospecting clients belonging to another member. After leaving the group, former members still had to comply with a non-competition clause for one year. Such non-competition obligation was imposed during calls for tender: the group established a priority order between its members and ensured that they did not respond to other members’ client’s requests.
This customer allocation system was closely monitored and a sanction mechanism with a point-based licence existed. A member who would fail to comply with the group’s policy could lose points, incur penalties and, in the long run, be excluded from the Astre group.
The French Competition Authority (“FCA”) considered that customer sharing is a serious breach of competition law in itself as it strongly reduces commercial autonomy of companies of the market, limiting therefore client’s choice and price competition.
Astre group did not challenge the facts and benefited from the settlement procedure.
Astre Coopérative received a fine of €1.3 million, whereas Astre Commercial was fined €2.5 million.
Julie Catherine
Associate, Paris
FCA and Bundeskartellamt a joint study on algorithms and competition
Considering the potential competitive risks and questionings associated with the increasing use of algorithms by companies, the French Competition Authority (“FCA”) and the German Bundeskartellamt published a study on algorithms and competition, on 6 November 2019, as a following up of their previous joint work carried out jointly by the FCA and the German competition authority on digital transformation of economic entities .
Pricing algorithms and collusion
The study contemplates several ways to categorize algorithms: by the task they perform, by the input parameters they use or by the involved learning method. After recalling that algorithms enable the collection of various data (related to the market dynamics, to competitors, or to buyer’s behaviour or preferences ), the authorities focus on algorithms used for dynamic price settings. These algorithms are capable of adapting prices to a company’s own cost, capacity or demand situation (especially in the air industry sector) but also to competitor’s prices (algorithms enabling online sellers to monitor prices set by other sellers in order to adapt their own prices).
The study explores how algorithms may affect strategic interactions between companies, potentially leading to horizontal collusion. Factors such as the number of companies on the market, the existence of barriers to entry, the frequency of interactions and the market transparency may be impacted by algorithms. But the actual impact depends on the characteristics of the respective markets.
The use of pricing algorithms is discussed in detail in the context of competition law issues in three scenarios:
The “traditional” anticompetitive practice results from a prior contact between humans and where the algorithm only supports or facilitates the implementation, monitoring or concealment of the practice. In such cases the use of an algorithm will likely not lead to specific competition law issues caused by the use of an algorithm.
The second scenario concerns the question to which extent algorithms enable coordination between competitors, with no direct communication between competing companies. The study distinguishes between alignment at the level of the algorithm (code level) or at the level of the input factors (data level). In the first case, a common third party (such as a software developer or consultancy firm) would be responsible for taking the decisions for competitors, using an algorithm. Here, an alignment of prices or prices parameters at the code level would probably constitute a restriction of competition by object. In the second case, competitors would use algorithms as a mean for information exchange. For instance, the software supplier causes an alignment of data by relying on a common data pool between competitors. In this case, the authorities will likely rely on the competition law principles regarding information exchange and apply these to the use of algorithms. An important factor will be in these cases whether the competing companies were aware or should be aware of the acts of the third party supply the algorithm.
The third scenario can be described as collusion by the parallel use of algorithms. Each competing company uses a distinct pricing algorithm and no ongoing contact between competitors exist. However, the mere interaction of computers also through means of self-learning by the algorithms may facilitate an alignment of the market behaviour of the competitors without specific human intervention. There both authorities follow the EC view in various speeches that companies employing algorithms need to consider how they can ensure antitrust compliance when using pricing algorithms.
Practical challenges when investigating algorithms
The study considers the types of evidence that may be used to establish a breach of competition law. It is about determining which information may be useful or reviewed by competition authorities, especially (i) relevant information associated with the role of algorithm and its context, (ii) the functioning of the algorithm (e.g. an analysis of the source code), and (iii) input data used.
The study concluded that the current legal framework allows competition authorities to address potential concerns regarding the use of algorithms and that it is too early to predict whether the legal regime and powers of the competition authorities will have to be reviewed and amended.
Julie Catherine
Associate, Paris
Paris Court of Appeal upheld FCA’s decision on online sales restrictions
In 2018, the French Competition Authority (“FCA”) fined Stihl €7 million for restricting online sales from the websites of authorised distributors between 2006 and 2017.
The sale on the Internet was initially banned outright, then from 2014 onward the selective distribution contract provided that so-called “dangerous products” could be booked online but had to be withdrawn from the store of the authorized distributor who sold the product for safety reasons.
The Paris Court of Appeal (“PCA”) confirms the FCA's analysis that this clause constitutes a restriction of passive sales and a restriction of competition by object.
An important question was whether this clause could benefit from an individual exemption, which requires four cumulative conditions to be fulfilled (the reality of economic progress, the indispensable and appropriate nature of the restriction in question, the existence of a benefit for consumers, and the absence of elimination of all competition).
In this case, the PCA considered that hand delivery was not necessary to provide adequate instructions and safety instructions to the customers. The clause could therefore not benefit from an individual exemption.
The PCA essentially upheld the decision of the FCA but reduced the amount of the fine from €7 million to €6 million.
Florent Barbu,
Supervising Associate, Paris
Restaurant vouchers issuers fined 415 million euros
On 18th December 2019, the French Competition Authority (“FCA”) imposed a 415 million euros fine on the four historical restaurant vouchers issuers in France: Edenred France, Up, Natixis Intertitres and Sodexo Pass France, as well as on the Centrale de Règlement des Titres (“CRT”), which handles the processing and redemption of restaurant vouchers on their behalf for their clients.
The FCA found that that these operators infringed competition law by implementing two types of horizontal anticompetitive agreement:
- between 2010 and 2015, Edenred France, Up, Natixis Intertitres and Sodexo Pass France exchanged confidential commercial information on their respective market shares every month through the CRT, which made it possible to restrict competition between them;
- between 2002 and 2018, Edenred France, Up, Natixis Intertitres and Sodexo Pass France adopted a series of agreements aiming at locking the restaurant vouchers market by controlling the entry of new players and prohibiting each other from issuing dematerialized vouchers (in the form of cards or mobile applications).
The FCA found that these practices have undermined competition and hindered the development of technological innovation in France, with dematerialised meal vouchers.
The full text of the decision will be published soon.
Florent Barbu,
Supervising Associate, Paris
FCA fines six fruit compote makers € 58.3 million for price fixing and market allocation
In 2010, the main compote manufacturers (Materne, Andros Conserves France, Délis SA, SAS Vergers de Châteaubourg, Charles Faraud, Charles & Alice, Valade and Coroos Conserven BV) decided to set up a master plan whose objective was (i) to increase the selling prices of compotes and coordinate the amount of prices increase, (ii) to agree on a common justification regarding this strategy and (iii) to allocate volumes and customers.
The achievement of their objectives was based on the allocation of calls for tenders organised by supermarkets and out-of-home catering distributors. The participants also provided compensation to offset any volume gains or losses affecting any of the manufacturer when they were not in line with what had previously been agreed.
Competitors justified the implementation of this cartel by an unfavourable economic situation, due to the increase in the cost of raw materials and packaging and the increasing pressure exerted by buyers (large retailers and out-of-home catering distributors).
The existence of the cartel was brought to the attention of the French Competition Authority (“FCA”) in 2014 by Coroos, which applied for leniency. The FCA investigation established that the companies have multiplied multilateral and bilateral contacts through meetings, e-mails or telephone calls. The functioning of the cartel was secret and relatively sophisticated (use of dedicated mobile phones, exchanges via private mailboxes and meeting held outside of the business premises).
On 18 December 2019, the FCA considered that this nationwide cartel, which was implemented between October 2010 and January 2014, was a very serious breach of competition law, as it involved the main compote manufacturers, covered a very large part of the market and was intended to eliminate uncertainty about competitor’s behaviour. Consequently, the FCA imposed a significant fine of € 58.3 million, distributed among the cartel participants.
Because it reported the cartel and for its cooperation during the investigation, Coroos benefited from a full exemption of fine. However, the FCA held aggravating circumstances against Materne, as the company had played a particularly active role in the organisation of the cartel.
Julie Catherine
Associate, Paris
Germany
Letter of completion based on a patent is not contrary to antitrust law if patent is invalidated in first instance
The Higher Regional Court Munich had to decide the question whether a so-called letter of completion, which is similar to a settlement, based on a patent infringement can be regarded as an abuse of a dominant market position if the underlying patent is invalidated in first instance.
Background
In the preliminary proceedings before the Munich District Court the patentee, a pharmaceutical company, obtained a preliminary injunction for patent infringement against the respondent who operates an information service for the pharmaceutical market and the IFA database, which also serves as the basis for the Lauer Taxe. All pharmaceuticals which shall be distributed in Germany will have to be included in this data base to be effectively distributed in Germany.
In the case at hand, the patent infringement was seen in the fact that the respondent included patent-infringing generics in its IFA database. After obtaining the injunction, the respondent settled the dispute by executing a so-called letter of completion, which means that the preliminary injunction was accepted as final ruling between the parties and the respondent waived its rights to appeal. Such a letter of completion is a common instrument in German proceedings to avoid proceedings on the merits and acknowledge preliminary injunctions as final.
However, the patent-in-suit was annulled by the Federal Patent Court in first instance with an appeal pending before the Federal Supreme Court. Based on the invalidation of the patent, the respondent challenged the enforcement of the cease and desist order in the preliminary injunction in order to be able to include the generic products in its data base. The Regional Court followed the respondent and stated that maintaining the waiver that the preliminary injunction can no longer be appealed constituted an abuse of a dominant position on the market as it prevented the respondent from adding competing products of the patent owner to the IFA database effectively preventing competitors from placing their products on the market.
The decision
The Higher Regional Court Munich overruled the decision of the regional court and rejected the request for the repeal of the cease and desist order of the preliminary injunction. The court stated that the letter of completion given was not void due to a violation of the German provisions on the prohibition of a dominant market position. The court ruled that for as long as the patent- in-suit has not been finally declared invalid (or has lapsed for any other reason) the letter of completion is still effective. According to the judgment of the Higher Regional Court, it is decisive for the assessment of an antitrust violation at which time letter of completion was signed. It is therefore decisive whether at that time there were objectively justified doubts about the existence or validity of the intellectual property right.
If this was not the case and the patent’s validity was not questioned or doubtful, the respondent had to assume that at that point in time that there would have been reasonable grounds to assume that the respondent would also lose in proceedings on the merits. Hence, it was reasonable to settle the matter by way of a letter of completion and not to go through proceedings on the merits. Against this background, the decision to end the legal proceedings by a letter of completion has to be considered as neutral under antitrust law. This does not change if the patent is later invalidated in first instance.
Dr Martin Gramsch
Counsel, Düsseldorf
Ad-Blocking software may hold a dominant position with regard to its user base
Germany has been a battleground with regard to ad-blocking services for a while. Several news outlets and other website operators have challenged the business model of software offerings that block or prevent advertisements being shown on websites.
The software in questions is “Adblock Plus” which is offered free of charge to individual users. After installation, the software blocks advertisements on webpages which are not included in a whitelist. In order to be added to the whitelist, webpage operator have to commit to show only “non-intrusive” advertisement and have to pay 30% of their ad revenue for being whitelisted. The Federal Supreme Court had to decide to which extent the operator of an ad-blocking service such as Adblock Plus holds a dominant position and the criteria applied by the operator of the ad blocker to add a website to a whitelist could be an abuse.
With regard to finding a dominant position, the Federal Supreme Court highlighted that the offering of the ad blocking software is an offering on a two-sided market. Therefore defining and attributing the market position may not be limited to the question of how many internet users actually use the ad blocker. Adblock Plus is used by approx. 20% of the German internet users which would not support finding of dominance. Rather, the software is also active on the market for offering “whitelisting” services to webpage operators. Hence the question is to which extent webpage operators can effectively circumvent the ad blocking service and reach users of Adblock Plus without being whitelisted. To the extent that webpage operators have no effective way of reaching these internet users, the service may nonetheless be dominant with regard to “its” users as there is no possible substitution for the whitelisting service regarding these users. As the appeal court did not make a detailed determination in this regard, the Federal Supreme Court referred the case back to the appeal court.
The Federal Supreme Court stated that a review of a potentially abusive behaviour will have to be made on the basis of balancing of interest taking into account the freedom of the webpage operator to choose their business model (advertisement financed v paywall), interests of internet users to avoid intrusive advertisements which is support by Adblock Plus as well as the fee structure for the whitelisting service. Regarding the latter, the Federal Supreme Court stated that a percentage of the advertising revenue may represent a disproportionate relation between the costs for unblocking and maintaining the software and profit achieved.
Dr Martin Gramsch
Counsel, Düsseldorf
Higher Regional Court Düsseldorf clarifies scope of illegal pressure on a reseller to adhere to resale prices
On 18 September 2019, the Higher Regional Court of Düsseldorf ruled that within a supplier-reseller relationship undue, pressure as per Section 21 (2) of the German Act against Restraints of Competition (ARC) on the reseller to participate in a resale price maintenance scheme will in most cases require more than simple discussions about the resale prices.
As per Section 21 (2) ARC an undertaking may not threaten other undertakings in order to induce them to a conduct which would violate competition law regulations (foremost Article 101 and 102 TFEU and the regulations of the ARC itself).
In the case at hand the plaintiff (a furniture reseller) had sued against the defendants (a furniture producer and its official representatives) for damages and continuation of performance under a supply contract which, as the plaintiff alleged, had only been terminated by the defendants for the unwillingness of the plaintiff to adhere to the price recommendations of the defendants and granting additional rebates to its customers.
While it was undisputed that the supplier had given recommendations regarding pricing and rebates, the court had found no evidence that these recommendations had included an implicit threat of a delivery stop, which could have forced the reseller to participate in an illegal resale price maintenance scheme.
A connection between the contract termination and the reseller’s price policy could therefore not be affirmed. In any event, the reseller would have needed to be reasonably under the impression that a certain behaviour was expected of the undertaking and that non-compliance would cause disadvantages to it. The court cautioned that a potential implicit threat would always have to be assessed against the disparity in market power between the parties at hand. The greater the disparity in favour of the supplier, the more likely an implicit threat could be assumed in such cases. In the given case however, the court found that it had indeed been the reseller which had been in a slightly better bargaining position. Therefore, there was also no basis to assume an implicit threat by the supplier. In the end, merely supplying price recommendations will in most cases not suffice to constitute a threat within the meaning of Section 21 (2) ARC.
Dr Jens Steger, Counsel, Frankfurt
Sven Klüppel, Associate, Frankfurt
10th Amendment of the German Act against Restraints of Competition
Current status of the draft bill
The German competition law regime as set out by the Act against Restraints of Competition (“ARC”) is scheduled to undergo major changes in the next year. While the ARC had only recently been amended at the end of 2016, additional changes became necessary to fulfil the requirements of the EU-Directive 2019/1 designated to empower the national competition authorities of the member states (“ECN+”-Directive), which set new standards on available measures, the status and cooperation of the national competition authorities. The Ministry for Economic Affairs and Energy in charge of the reform meanwhile also wanted to make further amendments to the ARC to account for changes in the digital economy and to tweak the efficiency and effectiveness of the German competition law regime.
A full draft of the respective bill surfaced with the status of the bill as of 7 October 2019 (“ARC-D)”.
The most important changes to the ARC (besides the requirements set out in the “ECN+”-Directive) as currently contemplated by the draft are:
- when determining the market position of an undertaking, its access to data relevant for competition shall also be taken into consideration (Sec. 18 (3) ARC-D). Likewise access to data may also become decisive when determining a dependency on undertakings with relative market power as per Sec. 20 (1a) Sentence 1 ARC-D);
- when assessing the market position of undertakings acting as intermediaries on multi-sided markets, special account should be taken of the importance of its services for the adjoined supply and sales markets (Sec. 18 (3b) ARC-D);
- sec. 19a ARC-D would grant the FCO far-ranging powers to intervene against undertakings with “paramount significance for competition across markets“ that are active on multi-sided markets. The FCO may declare undertakings to be of “paramount significance for competition across markets” and prohibit these undertakings from various actions that could (potentially) harm competition. Among those the draft lists:
- self-preferencing of vertically integrated undertakings,
- impeding competitors in markets where the undertaking does not hold a dominant position but could rapidly expand its market position,
- establishing or increasing barriers for market entry or otherwise impeding competitors on other markets,
- impeding the interoperability of products and serviced or the portability of data,
- providing insufficient information on the scope, quality or success of its services or otherwise impeding an assessment of its services;
- sec. 20 ARC contains a new definition of relative market power. Relative market power may not only be assumed in relation to small and medium sized enterprises anymore. As for the new relative market power based on data pursuant to Sec. 20 (1a) Sentence 1 ARC-D described above, an abuse of such market power may in the future also be assumed when the respective undertaking denies access to its data to other companies dependant on it, even if such data has not yet become subject to business dealings in general;
- further, an unfair impediment may also be assumed when an undertaking with superior market power impedes the positive network effects by its competitors causing a deterioration of competition (Sec. 20 (3a) ARC-D);
- sec. 32c ARC-D contains a codified consultation process with the Federal Cartel Office on the admissibility of cooperations between market participants under the ARC regulations and Article 101 & 102 of the Treaty on the Functioning of the European Union (TFEU). While the statements by the FCO declaring an intended cooperation not to violate competition law would not be legally binding, the draft at least entitles all companies that have a substantial legal and economic interest in such a preliminary judgement with regard to cooperation with its competitors to a decision by the FCO within six months’ time.
- regarding merger control proceedings, the second domestic turnover threshold pursuant to Sec. 35 (1) No. 2 ARC would be increased to EUR 10 million. Additionally, a minor market not subject to merger control as per Sec. 36 (1) Sentence 2 No. 2 ARC shall already be assumed when the cumulative turnover on the market did not exceed EUR 20 million per year. As a result, merger notifications would become necessary less frequently.
- the duration of second phase proceedings in case of merger control would in general be extended to five months, on the other hand additional extensions of this timeframe would be limited to a month (Sec. 40 (2) ARC-D);
- the Ministerial Authorisation pursuant to Sec. 42 ARC for merger proceedings not cleared by the FCO would become conditional on having at least taken steps for and being denied an interim injunction by the courts to allow the intended concentration. This change would significantly lengthen merger proceedings reliant on a Ministerial Authorisation, making it less attractive for companies to seek such an extraordinary permission.
These changes could lead to a quite strict regulation of successful companies in the new platform economy. Especially the approach towards data may cause concern in the digital economy. On the one hand, data would be considered something akin to an “essential facility” and a decisive asset for determining market power, on the one hand the new law may even require companies to share these assets even though they did not intend to create a market for such data in the first place and hinder the vertical integration of successful intermediaries in multi-sided markets. Meanwhile, companies dealing with private user data may also become caught up between the requirements set out by the new ARC and the rules of the General Data Protection Regulation. However, it still remains to be seen how the current draft will develop.
Dr Jens Steger, Counsel, Frankfurt
Sven Klüppel, Associate, Frankfurt
UK
Two UK public interest mergers: Advent International / Cobham, and Connect Bidco/Inmarsat
Connect Bidco/Inmarsat:
The proposed acquisition of Inmarsat was announced on 25 March 2019 and voluntarily notified to the UK Competition and Markets Authority (“CMA”) on 15 July 2019. In an attempt to emulate the GNK/Melrose deal, the acquirer (a consortium of private equity funds named Connect BidCo) announced that it had voluntarily agreed legally-binding undertakings with the UK Government on 18 July 2019 to address potential national security concerns.
These commitments included: (a) supporting Inmarsat's continued role as a leader in the space sector, (b) procuring that the majority of key strategic decisions of both Connect BidCo and Inmarsat are taken in the UK, and (c) procuring that certain defined Core Global Network Operations remain in the UK.
However, the voluntary undertakings proved to be insufficient, and a public interest intervention notice (“PIIN”) was issued by the Secretary of State for Digital, Culture, Media and Sports in respect of the acquisition on national security grounds on 22 July 2019.
This case is the second time that the Secretary of State has intervened on national security grounds since the UK Government amended the regime for national security mergers in June 2018. The first case being that of Gardner Aerospace/Northern Aerospace.
Following the PIIN, Connect BidCo/Inmarsat offered formal undertakings in lieu, providing further assurances that sensitive information will be suitably protected post-merger, and that enhanced security controls are in place to ensure the continued supply of key services used by the Ministry of Defence. It is worth noting that the undertakings in lieu were far more detailed compared to the voluntarily commitments.
The draft undertakings were subject to a short period of consultation until 24 October 2019. The transaction now seems likely to be permitted to proceed subject to undertakings.
Advent International / Cobham:
On 25 July 2019, the US private equity firm Advent International agreed to buy Cobham plc, the British defence and aerospace group known for its pioneering air-to-air refuelling technology. The company generates around 8% of its £1.86B revenue in the UK (c. £150M), including a contract to train Royal Navy pilots. As a major British company, this acquisition prompted the Secretary of State for Business Energy and Industrial Strategy (“BEIS”) to issue a European intervention notice (“EIN”) under section 67 of the Enterprise Act 2002 on the grounds of national security on 17 September 2019.
This case is the third time that a Secretary of State has intervened on national security grounds since the UK Government amended the regime for national security mergers in June 2018. However, this merger was the first to involve an EIN, as opposed to a public interest intervention notice (“PIIN”). An EIN is used where a merger falls to be assessed under the EU regime rather the UK regime.
The CMA eventually published its report on 29 October 2019, providing a summary of the submissions received from the Ministry of Defence, Home Office and third parties. It confirmed that Advent’s acquisition would have fell to be assessed under the UK’s new thresholds for security mergers (which is £1 million, instead of £70 million in other cases).
A statement was issued on 05 November 2019 that further consideration was required. On 19 November 2019, the parties to the merger proposed undertakings in lieu to avoid the need for a phase 2 reference and BEIS opened a consultation on these undertakings, inviting comments by 17 December 2019.
The undertakings offered to the Secretary of State – which include an obligation to give the Ministry of Defence notice if it decides to sell all or part of Cobham – are weaker than those demanded by the previous Secretary of State in the GKN/Melrose takeover. In that deal, the undertaking included the right to veto the disposal of sensitive defence assets. Current market intelligence suggests that the new government of Boris Johnson will clear the deal shortly in the new year.
The Transaction was further conditional on United States merger clearance, which it received on 17 September 2019, and foreign investment approvals in Australia, France, and Finland. The deal received clearance in Finland on 04 October 2019, whilst the other clearance is still pending.
Romain Girard
Associate, London
FCA’s interim report on insurance pricing notes market is “not working well’
On 04 October 2019, the UK Financial Conduct Authority (“FCA”) published its Interim Report in relation to its home and car insurance pricing market study, where it concluded that pricing in insurance markets meant consumers were not receiving the best outcomes.
The study was launched in October 2018 to assess whether competition is working effectively for consumers for both car and home insurance pricing, following on from the Citizen’s Advice super-complaint to the CMA in September 2019 on the same topic.
The FCA’s interim report indicates that consumers in both home and car insurance markets do not regularly switch or negotiate with providers. Moreover, the FCA found that many insurance providers were enticing new customers with substantial discounts; often below cost and then raising premiums significantly in subsequent years when policies were renewed (and often auto-renewed).
The FCA has therefore proposed remedies including limiting pricing practices that allow firms to charge consumers who do not switch frequently higher premiums; auto-switching; engagement with customers to provide further information about other details; and data tracking.
The FCA aims to publish the final report, alongside a consultation paper on any proposed remedies in Q1 2020.
Shachi Nathdwarawala
Supervising Associate, London
Live music merger provisionally cleared in the UK
In November 2019, the UK Competition and Markets Authority (“CMA”) announced its provisional finding that the acquisition of MCD Productions (“MCD”) by LN-Gaiety Holdings (“LN-Gaiety”) is not likely to raise competition concerns. This follows a Phase II merger investigation.
The acquirer, LN-Gaiety, is a joint venture between Gaiety and Live Nation. The acquirer and the target (MCD) both run music festivals, whilst MCD also promotes live music events in Ireland. Live Nation also manages artists, operates venues and provides ticketing services through its subsidiary Ticketmaster.
The CMA’s Phase I investigation concluded that the deal might reduce competition in the music promotion industry in Northern Ireland. There are relatively few music promoters in that region and the CMA found that most rely on Ticketmaster to sell tickets for their events. The CMA’s key concern was that Live Nation would be able to stop rival promoters to MCD selling tickets through Ticketmaster, reducing competition in promotion services and raising prices for concert goers (with fewer events to choose from).
At Phase II, the CMA assessed the impact of the deal on:
- the provision of primary ticketing services for live music events in Ireland, including Northern Ireland; and
- the promotion of live music events above 1,000 capacity in Ireland.
The CMA considered only one theory of harm, as identified in the Phase I investigation; would Live Nation (through Ticketmaster) implement vertical input foreclosure of rival promoters!
The CMA found that Live Nation had market power in ticketing for live music events – ticketing being an essential element for those events – and Aiken, the only major competitor, would have difficulty in switching its ticketing provider.
However, the CMA found that Live Nation would not have an incentive to foreclose Aiken because MCD would have to win a high proportion of the business lost by Aiken for a foreclosure strategy to be profitable; particularly if Aiken responded to foreclosure by switching to another ticketing provider. The CMA considered that the very high threshold makes it unlikely that MCD would be able to win sufficient business to make a foreclosure strategy profitable.
Furthermore, in foreclosing Aiken, Ticketmaster would run the risk that a new ticketing provider (by servicing Aiken) might become established in Ireland on a substantial scale.
In light of its conclusions regarding the absence of an incentive to foreclose, the CMA has provisionally concluded that the deal would not be expected to reduce competition within any market or markets in the UK.
Duncan Green
Associate, London
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